Investment Returns Fall Short for KY Public Pension Funds

October 26, 2011 (PLANSPONSOR.com) - Kentucky's two public pension funds fell short of their assumed rates of investment return over the last decade, raising more retirement concerns for public workers, reports the Lexington Herald Leader.

The $14 billion Kentucky Retirement Systems (KRS), which covers 324,000 state and local government workers, expected a 7.75% rate of return, but earned only 5.51% over the past 10 years. The $15 billion Kentucky Teachers’ Retirement System (KTRS), which covers 125,000 public school teachers, expected to earn 7.5% while getting only 4.8% over the past 10 years, states the article.

Members of the state legislature’s Interim Joint Committee on State Government will meet on Wednesday. Lawmakers are expected to ask pension officials if their investment income will be adequate to pay lifetime pensions and health insurance for half a million people.

Nationally, the states collectively face an unfunded liability of $660 billion in their public pension funds, according to an April report from The Pew Center on the States, and the Pew Center said Kentucky is in worse shape than most states, the Herald Leader noted. Some experts suggest the states adopt a “riskless” assumed rate of return tied to the 30-year U.S. Treasury bond, which fluctuates with the market, according to the report.

Officials at the pension funds say change isn’t necessary, at least not yet.

They take a longer view than one-, five- and 10-year returns. Their boards of trustees adopt the assumed rates of returns based on several decades of performance, they said. By the year 2030, the period from 2000 to 2011 should look like an unfortunate aberration, they said.

“The current flat market returns cannot last forever. Things do change,” said Robert Barnes, General Counsel for KTRS, according to the news report.

Under pressure to produce better returns, KTRS and KRS are diversifying their portfolios beyond the usual domestic stocks and bonds. For example, KTRS now invests significantly in international stocks, Barnes said. KRS in 2009 agreed to place $200 million in a start-up hedge fund.